Based on the Employment Retirement Income Security Act (ERISA), a retirement plan may be considered ...

By Investopedia Staff AAA
Q:
Based on the Employment Retirement Income Security Act (ERISA), a retirement plan may be considered QUALIFIED, if it meets all of the following criteria EXCEPT:
a) Vesting
b) Does not have to be offered to all employees
c) Eligibility Requirements
d) The investment of contributions and determination of benefits
A:
The correct answer is b.
With regard to eligibility, the plan must cover all employees 21 and older who have worked for the employer for at least two years, and at least one year for 401(k) plans. If more than one year is required, the employee must then be vested immediately at 100%. Vesting describes the schedule by which employees gradually receive the portion of monies contributed by the employer. Qualified plans receive a more favorable tax treatment than non-qualified plans and follow strict guidelines set forth by ERISA, which are specific to how the plan assets are invested and distributed. Non-qualified plans do not have to be offered to all employees. Qualified plans must be available to everyone.

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